Daily Digest - Jan 4

Sunday, January 4, 2009, 12:21 PM
  • 2008 Job Losses Probably Worst Since 1945: U.S.
  • Barons Video: Stay Away from Treasury Bonds
  • Upgrading The US Energy Grid: A Trillion Dollar Problem?
  • Paulson says crisis sown by imbalance
  • Commercial real estate in for tough 2009  


2008 Job Losses Probably Worst Since 1945: U.S. 

Jan. 4 (Bloomberg) -- The U.S. economy probably lost more jobs in 2008 than in any year since the end of World War II as firings rippled from homebuilders and automakers to banks and retailers, a government report may show this week. 

Payrolls fell 500,000 in December, bringing last year's decline to 2.4 million, the most since 1945, according to the median estimate of economists surveyed by Bloomberg News ahead of Labor Department figures due Jan. 9. The unemployment rate likely jumped to the highest level since 1993.

The figures will underscore the urgency behind President- elect Barack Obama's plan to pass a stimulus package that will create jobs and mitigate the recession, already the longest in a quarter century. Other reports may show slumps in housing, manufacturing and service industries deepened at the end of last year, setting the stage for more weakness in 2009.

"We're continuing to lose massive amounts of jobs," said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. "The negative momentum carrying over into the first half of 2009 will hold down the economy regardless of policy."

The jobless rate probably climbed to 7 percent in December from 6.7 percent the prior month, according to the survey median. 

Barons Video: Stay Away from Treasury Bonds

Upgrading The US Energy Grid: A Trillion Dollar Problem? 

The incoming Obama administration faces any number of sizable challenges. One thing the President-elect proposes is to spend $150 billion "over the next ten years to catalyze private efforts to build a clean energy future." That money is supposed to help create 5 million new jobs. 

The new administration also proposes to increase the amount of electricity that comes from renewable sources from 10% in 2012 to 25% by 2025. Another laudable goal.

Looking at the second goal first, the US currently generates about 9% of its electricity from renewable sources. That's if you count hydroelectric as a renewable source. If you don't, renewable sources account for only about 2% of US power generation. Going from 2% to 10% in just four years does not seem likely.

The other goal also demands a closer look. Investing $150 billion in clean energy is a great idea, but how much does that really improve the US energy picture? And where should the money go: wind, biofuel, solar?

An argument could be made that more critical than any new source of generation is the development and upgrading of the country's electrical transmission and distribution grid. There are about 200,000 miles of power lines in the US. Much of the grid is nearing 50 years of use and is not geographically close to where solar and wind power can be most efficiently generated.

For example, the windiest places in the lower 48 states are the Dakotas. To build transmission lines from North and South Dakota to New York City would cost about $13 billion. The investment would eventually be recovered in cost savings, but the up-front money needs to come from somewhere. 

Paulson says crisis sown by imbalance 

Global economic imbalances helped to foster the credit crisis by pushing down global interest rates and driving investors towards riskier assets, outgoing US Treasury Secretary Hank Paulson told the Financial Times. 

In a valedictory interview, Mr Paulson cast the crisis as partly the result of a collective failure to come to terms with the way the rise of emerging markets was reshaping the global financial system. These imbalances - arising from differences in the inclinations of different nations to save and invest - are reflected in large current account deficits and surpluses around the world.

The US Treasury Secretary said that in the years leading up to the crisis, super-abundant savings from fast-growing emerging nations such as China and oil exporters - at a time of low inflation and booming trade and capital flows - put downward pressure on yields and risk spreads everywhere.

This, he said, laid the seeds of a global credit bubble that extended far beyond the US sub-prime mortgage market and has now burst with devastating consequences worldwide.

"Excesses . . . built up for a long time, [with] investors looking for yield, mis-pricing risk," he said. "It could take different forms. For some of the European banks it was eastern Europe. Spain and the UK were much more like the US with housing being the biggest bubble. With Japan it may be banks continuing to invest in equities."

This argument - already advanced by a number of economists and largely endorsed by Federal Reserve chairman Ben Bernanke - suggests that the roots of the crisis do not simply lie in failures within the financial system.

It also implies that avoiding crises in future will require global macroeconomic co-operation as well as better financial regulation and risk-management. 

Commercial real estate in for tough 2009  

NEW YORK (AP) - The balance of power between landlords and tenants will shift dramatically in 2009.

For landlords, this promises to be a year of intense competition, more bankrupt tenants, and tightfisted lenders. For renters, it looks like a time of abundant choices and tiny - if any - price increases.

From apartments to shopping malls, office towers to dockyard industrial space, the commercial real estate market will be marked by rising vacancy rates and weak to no rent growth. And the choke hold on credit could push many property owners that need to refinance into foreclosure. 

Nearly 40 percent of real estate investors need to refinance part of their portfolios this year, according to more than 1,100 investors surveyed in October by Marcus & Millichap Real Estate Investment Services and National Real Estate Investor magazine. The investors also expect prices to decline 15 percent on average this year.

"It's hard to be an optimist right now," said Dan Fasulo, managing director of research firm Real Capital Analytics. "We're at the point where there's another potential systemic failure that the industry is trying to avoid."

Real Capital identified more than 1,000 large commercial properties nationwide, representing $25.7 billion, that are already bank-owned or the landlord is in default. But there are another $80.9 billion, or more than 3,700, properties that could potentially fall into trouble this year, the firm estimates.

Last month, a commercial real estate trade group appealed to the Bush administration for a slice of the $700 billion bailout of the financial services industry. The Treasury Department has yet to make a decision whether to include commercial property loans.

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Davos's picture
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Re: Daily Digest - Jan 4


RussB's picture
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Re: Daily Digest - Jan 4

Worst job losses since 1945:

That sounds bad enough, but it's a lot worse if my supposition is correct, that big job losses in '45 must have been a temporary effect of the country retooling back from a war to a civilian economy (though I don't know that for sure).

Landlords and tenants:

Regarding the part about apartment rents, it's good to see at least one piece of good news for renters, who look like the one group in America being purely screwed according to anybody's plan. (Of course they were also the one group who got purely screwed during the bubble's inflation as well. And now they have to see their taxes going to help all those who have already been feeding off them for years.)    

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